Question

Some of the most ardent fans of Arsenal, Manchester United, and Liverpool live far from Highbury, Old Trafford, and Anfield, in Hong Kong and Singapore.

Until the 2006-07 season, ESPN Star Sports held the broadcast rights to

the English Premier League (EPL) for Singapore. Then, in late 2006, StarHub

bid an estimated US$160 million to beat incumbent ESPN Star Sports and

telecommunications provider, SingTel, to win the rights for the next three

seasons. The winning bid was reputedly several times the amount that ESPN

Star Sports had paid for the previous rights.

The Singapore government prohibits the reception of satellite TV. Integrated telecommunications and cable TV provider, StarHub, is the only provider of cable TV in Singapore. The government did offer a second cable TV license, but no one applied.

In 2007, StarHub’s major source of revenues was mobile services, which

accounted for 52% of revenues, with cable TV, broadband, fixed network

services, and equipment sales accounting for 17%, 12%, 14%, and 5%

respectively.

In 2001, StarHub unbundled the basic cable TV package into thematic

basic packages and reduced the price from $32.95 to $20 a month.

Subsequently, it added new channels to the various basic packages without

raising prices. The new channels included CCTV-9, Discovery Travel & Living

and STAR Chinese Channel.

In 2004, StarHub raised the price of the sports package by $7 to $15 a

month. The sports package included ESPN Star Sports. Typically, cable TV

operators pay content providers such as ESPN a royalty based on the number of

subscribers to the content.

Following its acquisition of the English Premier League rights, StarHub

announced price increases. It raised the price of basic packages by $4 to $24 a

month with effect from July 11. It decided to broadcast the EPL on its own sports

channel, which was included in the sports package. It raised the price of the

sports package by $10 to $25 a month, with effect from October.

Mr Thomas Ee, Senior Vice President of Cable, Fixed & IP Services,

justified the prices increases, “Most pay-TV operators around the world increase

prices periodically and StarHub has not done so despite a steady rise in costs

over the years”.

In 2007, StarHub’s cable TV revenue grew by 9% from S$313 million to

S$342 million. ARPU (average revenue per user) rose by 6% from S$48 to S$51,

while the subscriber base increased by 4% to 504,000 as at end December 2007.

Relative to the number of households in Singapore, the subscriber base

amounted to a 45% penetration rate.

Questions:

In general, use diagrams where applicable; AND, if numerical data is given, try to

quantify responses. You will need to do some additional research to answer

some of these questions.

d) What was the market structure in which StarHub’s cable TV product was

operating in? Specify the characteristics that led you to that assessment.

Are there barriers to entry? If so, what are they?

e) Do you think that, prior to the 2007 price increases; StarHub’s prices had

maximized profits? (Hint: what was your answer to (d)?)

f) “With the data given, it is obvious that StarHub will never recover the

investment on the EPL rights within the length of the rights (i.e. within

three years)”. Verify or deny this statement with the data given.

Answer 1

d.

Following its acquisition of the English Premier League rights, StarHub announced price increases. It raised the price of basic packages by $4 to $24 a month with effect from July 11. It decided to broadcast the EPL on its own sports channel, which was included in the sports package. It raised the price of the sports package by $10 to $25 a month, with effect from October.

In 2007, StarHub’s cable TV revenue grew by 9% from S$313 million to S$342 million. ARPU (average revenue per user) rose by 6% from S$48 to S$51, while the subscriber base increased by 4% to 504,000 as at end December 2007.

e.

Answer

ARPU that rose from S$48 to S$51 and the increase in the subscriber base are relevant to StarHub’s pricing of cable TV services.

In the absence of data for the prior periods, in particular about the profits difficult to say about maximized profit. Only relevant statement is , in 2007 revenue increased by 9% from S$313 million to S$342 million and bid cost is US $160 million for three years.

f.

There is no moral hazard as long as the demand of the content provider justifies the benefits over the costs to the cable TV operator. Business is about earning profits with customer satisfaction.